San Diego’s Affordable Housing Dilemma

Media price exceeds $400,000

The median home price in San Diego is over $419,000 – just one of many areas in the state where the median price exceeds $400,000 and is out of reach for many hopeful home-buyers. In San Diego, and most of the state, lip service is outpacing reality when it comes to moving toward affordable housing. With the help of state and federal agencies, we are getting shortsighted, Band-Aid approaches that show a complete misunderstanding of the issues confronting home-buyers and the market.

One popular plan is the construction of “affordable housing.” On the surface, it is hard to be opposed to anything in San Diego when that nomenclature, “affordable housing,” is used. However, consider what affordable housing really means to government agencies – subsidized rental construction to income-qualified residents in some of the most expensive communities in the area. If a more accurate description were used, say, “Tax credits for large corporations to develop apartments where some residents pay less rent based on their incomes,” – would the concept sound as desirable?

For most families or individuals, buying a house is about trade-offs. However, affordable housing rental projects create a system where some people don’t have to confront these trade-offs and thus distort the housing market. It isn’t realistic for everyone in society to expect to live next to Hollywood celebrities in Malibu, or even live exactly where they work. For example, a waiter working in the Gaslamp District should not necessarily expect to be able to afford high downtown prices. The government’s goal of making rental housing affordable to everyone, in every community, allows many residents to avoid making trade-offs, and dramatically hurts those working toward the American dream of owning a home.

San Diego and the state need to shift away from affordable housing projects designed to help renters, and toward policies that encourage first-time home-buyers, and others, to enter the for-sale housing market.

To do that, we must evaluate regulations and policies, like so-called affordable housing, that are having negative and unintended consequences on potential home-buyers. Growth boundaries, project approval slowdowns, and Proposition 13 essentially provide incentives to cities to approve commercial uses over new housing projects – helping create shortages of affordable homes.

A recent Reason Foundation study showed growth boundaries were a principal force that caused housing prices in San Jose to increase by an astronomical 936 percent from 1976 to 2001. And a study commissioned by the New York Federal Reserve shows “zoning and other Byzantine land use regulations” are responsible for driving up housing prices in many areas like San Diego. Development impact fees levied by local governments average $20,000 to $30,000 per unit in California. These fees are passed on to the home-buyer.

California and San Diego should change their approaches to the housing affordability issue. We should abandon subsidies for income-restricted rental housing development because it hasn’t solved the problem. Instead, we should focus on offering lower interest home purchase loans for qualified residents.

At the same time, government agencies should identify destructive growth control policies that have been primary barriers to constructing a natural supply of “for-sale” houses. “You can’t freeze dry a city and think that a general plan written in 2003 provides an accurate picture of what that city will look like in 2020,” said William Fulton, president of Solimar Research Group, a Ventura County-based land use research organization. The best way to lower housing prices is to increase the supply.

Instead of suffering through the harmful, inadvertent consequences of these growth regulations – like steep increases in home prices – we should spend more time planning on the local neighborhood level. It is important to gather input and buy-in from all interested parties – developers, politicians and various neighborhood groups.

With buy-in from these groups, we can take a larger look at the housing problems. For example, we often complain that teachers, police officers, firefighters and nurses can’t afford houses in San Diego or California. But is it better to subsidize their home purchases or raise their salaries?

Raising incomes in these professions is a better use of public money than manipulating the housing market by offering rental property discounts or other gimmicks. If your rent is subsidized when you make $45,000 per year and not at $55,000 per year, your disposable income may actually be higher at the lower compensation, thereby reducing your incentive to get out of subsidy-free housing.

Housing prices and incomes are a complex relationship about trade-offs that people make. Some people choose a central location, sell their car and get a roommate, and still others may move out of the area altogether to a less expensive region.

Housing has always been, and should be, about trade-offs. San Diego needs to make sure that individual and market responses to those trade-offs are allowed to happen.

Chris Fiscelli is a senior fellow in urban and land use policy at Reason Foundation